'Bizarre' effects: tax plans face off.

• Author: Doherty, Brian
• Position: Citings - Brief article

TWO BOSTON University economists, Laurence Kotlikoff and David Rapson, recently compared our current tax system with the proposed "FairTax"--a 23 percent federal sales tax, intended to replace all existing federal income, payroll, estate, and gift taxes. They wanted to see how a shift to the FairTax would affect Americans' incentives to work and save.

Their answers favored the FairTax, which, they argued, would create a lower tax rate on wages for almost all American households across a range of income levels. It would also replace effective marginal tax rates on savings of about 23 percent to 54 percent with a rate of zero, since any dollar not spent would not be taxed.

Before they got to those answers, Kotanswers, likoff and Rapson came to a conclusion that's...